There's Something Different About This Rally - Here's What to Do About It

The S&P 500 is on target to hit the "best first half-year" it's had in more than a decade, while the Dow is on track to do even better, with the best June on record since 1938.

Strategically speaking, I think the rally could go on for another decade, which is why you want to invest accordingly. There really is that much fuel pent up between growing sales, cheap money, and - unbelievably - a Fed that's still accommodative.

Tactically, though, I sense a change in direction. I'm not alone in my thinking, incidentally. JPMorgan Chase & Co. (NYSE: JPM) analysts pointed out something my own research has picked up on and we've talked about in recent months.

Don't get me wrong - this change is nothing to fear. But it's the perfect time to emphasize some of the tactics and investments we've talked about before so that we're in the best possible position for profits.

Let me show you what's going on...

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Here's the Big Difference in This Market

As my research shows (and, again, JPMorgan's research backs me up here), the cyclical stocks - usually key economic growth drivers - have failed to keep up since May, when they and the rest of the market lost ground.

In fact, only utilities and consumer staples have kept up, which means, technically speaking, there's no confirmation for the rally.

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In plain English, rallies are usually confirmed by broad market movements. If you're a boater, the expression is "a rising tide will raise all boats."

Only in this instance, not all boats are rising; some, like technology, are simply slowly sinking compared to the rest of the market. It's important to note they're not dropping, just rising more slowly.

You can see that quite clearly in this chart from CNBC, which reported JPMorgan's research earlier this past week. Consumer discretionary stocks have returned only half what consumer staples have.

Take a look:

We call this phenomenon "divergence"; it's something typically seen only for short periods of time before something "gives."

One of two things has to happen to lessen the divergence and bring things back in line:

  1. a) The markets have to fall for a bit until values even out; or
  2. b) Cyclical stocks have to eat their Wheaties and, quite literally, catch up.

What do I think will happen?

I honestly have no idea. Nobody does...

That's why we want to prepare now for both eventualities.

Here Are the Three Steps to Take to Stay Safe and Profitable

Make sure you've got your protective stops in place and have already (as in right now, TODAY) made decisions with regard to which stocks you'll sell if the market rolls over and which stocks you'll hold (for reasons that will become clear in a moment).

This is a smart time to buy very specialized investments like the Rydex Inverse S&P 500 Strategy Fund (MUTF: RYURX) or put options on the major indexes that'll get you through the summer. Volatility is low at the moment, so these kinds of investments and trades are cheap. That means you can get a lot of bang for your buck if there's a rollover.

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Finally, double-check the shopping list you keep for situations like this. Put another way, figure out what you're going to buy - and what price you want to pay. When the you-know-what hits the fan, it's never evenly distributed, so now's an ideal time to use Total Wealth tactics like the lowball order to literally name your price.

I'm thinking, for example, Apple Inc. (NASDAQ: AAPL) at $174.50 or Alphabet Inc. (NASDAQ: GOOGL) at $1,000, to give you an idea.

What you're shooting for here are prices that are so low your neighbors and your friends think you've lost it. But you'll get the last laugh when you pay just $1,800 to own Amazon.com Inc. (NASDAQ: AMZN).

By the way, if you're not familiar with the lowball order, or any of the other Total Wealth tactics we talk about, you can click right here to subscribe to my Total Wealth research absolutely free of charge. You'll hear from me each week with a new investing strategy or stock to buy, and you'll instantly get my report of five stocks at the cutting edge of Silicon Valley's "Dividend Revolution".

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